Financial officials preparing for yuan exchange process

By Joyce Huang / STAFF REPORTER

Wed, Apr 16, 2008 - Page 1

Foreign exchange regulators said yesterday that they are poised to deregulate currency exchange between the New Taiwan dollar and the yuan — as long as legal revisions are finalized by the legislature.

Once Article 38 of the Statute Governing the Relations Between the People of the Taiwan Area and the Mainland Area (兩岸人民關係條例) is revised by the legislature and a currency clearing agreement is inked between Taiwan and China, the central bank, the FSC and the ministry said they will speed up their preparations for the free exchange of the NT dollar and the yuan.

The central bank proposed a two-phase process yesterday. The incoming government should adopt a one-way exchange first, allowing domestic banks to buy Chinese yuan since the supply of yuan remains a big question because the central bank has no yuan in reserves, Chou said.

Once China agrees to sign a currency-clearing pact to ensure the yuan’s convertability and supply, a currency exchange can be opened once domestic banks have been trained to identify fake yuan bills, he said.

Taiwanese made 4 million trips to China last year, which would put great pressure on domestic banks if they are immediately asked to sell yuan, Chou said.

A test run that allowed banks in Kinmen and Matsu to trade less than 20,000 yuan (US$2,850) per person showed that banks there sold 443.8 million yuan between October 2005 and last month — six times more than the 78.56 million yuan they bought during the same period, central bank statistics show.

Since the yuan is not a “fully convertible” currency like the US dollar, it could be risky to hold too much of the currency, Chou said.